Sharp Turns - Q3 Commentary

Investors continue to be successful going into the fourth quarter, with all major asset classes posting positive returns YTD. Yes, you read that right — all of them. But we've still got a couple sharp turns to navigate before year end.

#1 Interest Rates

With the markets up big this summer, volatility relatively low, and a string of "good-enough" economic data releases, markets are again beginning to look to Janet Yellen and the Fed for a possible interest rate hike by year end.

For long-term investors, rising interest rates mean that the inflated prices of bonds will fall within portfolios and fixed income mutual funds. But it's important to remember that rising rates also mean that investors will be able to reinvest maturing bonds into higher yielding, low-risk investments.

#2 Energy

After a large upward push earlier in the year, WTI crude prices settled comfortably into a trading range between $45-50/bbl for most of Q3. At the most recent OPEC meeting, an agreement amongst member countries was finally reached to make the necessary production cuts needed for prices to rise.

Even Russia, the world's largest non-OPEC crude producer, has come out this week saying they are willing to join OPEC in production cuts. The Saudis and Iraqis are likely to be the ones asked to make the largest cuts.

#3 The Election

If you're like me, November 8 cannot come soon enough for this bizarre election cycle to be over.

A recent Vanguard research report, which studied stock market returns going back to 1853, found them to be nonpartisan in the long run. In the short run, markets still hate surprises.

Bottom Line: It may not feel like it, but the US economy is doing pretty well. Long-term investors should continue to focus on their goals and not allow the noise to distract from a well-developed asset allocation plan.

Happy Fall!
Amy Hubble, CFA, CFP®